President
Barack Obama has called for a luxury tax on corporate jets as a means to
generate revenue to fight federal deficits. The president’s economic advisers
ought to be fired for not telling him that doing so is unwise and
counterproductive. They might have already told him so, only to have the
president say, “Look, I know you’re right, but I’m exploiting the public’s envy
of the rich!” Let’s look at what happened when Obama’s predecessor George H.W.
Bush signed the Omnibus Budget Reconciliation Act of 1990 and broke his
"read my lips" vow not to agree to new taxes.

When Congress
imposed a 10 percent luxury tax on yachts, private airplanes and expensive
automobiles, Sen. Ted Kennedy and then-Senate Majority Leader George Mitchell
crowed publicly about how the rich would finally be paying their fair share of
taxes. What actually happened is laid out in a Heartland Institute blog post by
Edmund Contoski titled “Economically illiterate Obama, re: Corporate Jets”
(7/12/2011).

Within eight
months after the change in the law took effect, Viking Yachts, the largest U.S.
yacht manufacturer, laid off 1,140 of its 1,400 employees and closed one of its
two manufacturing plants. Before it was all over, Viking Yachts was down to 68
employees. In the first year, one-third of U.S. yacht-building companies
stopped production, and according to a report by the congressional Joint
Economic Committee, the industry lost 7,600 jobs. When it was over, 25,000
workers had lost their jobs building yachts, and 75,000 more jobs were lost in
companies that supplied yacht parts and material. Ocean Yachts trimmed its
workforce from 350 to 50. Egg Harbor Yachts went from 200 employees to five and
later filed for bankruptcy. The U.S., which had been a net exporter of yachts,
became a net importer as U.S. companies closed. Jobs shifted to companies in
Europe and the Bahamas. The U.S. Treasury collected zero revenue from the sales
driven overseas.

Back then,
Congress told us that the luxury tax on boats, aircraft and jewelry would raise
$31 million in revenue a year. Instead, the tax destroyed 330 jobs in jewelry
manufacturing and 1,470 in the aircraft industry, in addition to the thousands
destroyed in the yacht industry. Those job losses cost the government a total
of $24.2 million in unemployment benefits and lost income tax revenues. The net
effect of the luxury tax was a loss of $7.6 million in fiscal 1991, which means
Congress’ projection was off by $38.6 million. The Joint Economic Committee
concluded that the value of jobs lost in just the first six months of the
luxury tax was $159.6 million.

Congress
repealed the luxury tax in 1993 after realizing it was a job killer and raised
little net revenue. Why did congressional dreams of greater revenues turn into
a nightmare? Kennedy, Mitchell and their congressional colleagues simply
assumed that the rich would act the same after the imposition of the luxury tax
as they did before and that the only difference would be more money in the
government's coffers. Like most politicians then and now, they had what
economists call a zero-elasticity vision of the world, a fancy way of saying
they believed that people do not respond to price changes. People always
respond to price changes. The only debatable issue is how much and over what
period.

Here’s my
question for you: Is it likely that in the two decades since 1990, American
human nature has changed? If Congress imposes a luxury tax on corporate jets
and other luxury items, will Americans behave differently this time? In other
words, can we expect federal tax revenues to rise and unemployment to fall as a
result of Obama’s tax proposal?

I don’t believe
that Obama is dumb enough to believe that a tax on corporate jets would be a
revenue generator. His agenda is to inspire envy and resentment against wealthy
Americans as a tool in pursuit of his higher-tax agenda.

Walter E.
Williams is a professor of economics at George Mason University. To find out
more about Walter E. Williams and read features by other Creators Syndicate
writers and cartoonists, visit the Creators Syndicate Web page at
www.creators.com.